WRAPUP 2-Weak oil, food prices dampen US imported inflation

June 12, 2012|Reuters

* Import prices fall 1.0 percent in May on fuels, food

* Drop largest since June 2010

* Export prices decline 0.4 percent

By Lucia Mutikani

WASHINGTON, June 12 (Reuters) - U.S. import prices recordedtheir largest decline in nearly two years in May as energy andfood costs fell, pointing to muted inflation pressures amidslowing global demand.

The Labor Department said on Tuesday import prices fell 1.0percent, the biggest drop since June 2010, after being flat inApril. In the 12 months to May, import prices fell 0.3 percent,posting their first year-on-year decline since October 2009,also reflecting a stronger dollar.

The data was the latest sign that falling energy prices werekeeping inflation pressures well contained and offered evidenceof weakening global demand as the debt crisis in Europe worsens.

Against the backdrop of a sputtering economic recovery,economists said the benign inflation environment gave theFederal Reserve so me scope to ease policy further through eitheranother round of bond purchases, also known as quantitativeeasing, or other measures to keep interest rates down.

"Price pressures have come off sharply since April...givingthe Federal Open Market Committee some breathing room shouldthey want to implement more quantitative easing," said EllenZentner, senior economist at Nomura Securities in New York.

But the U.S. central bank is not expected to announce newpolicy initiatives at its two-day meeting next week. Economicactivity has cooled off significantly, with job growth brakingsharply in the past three months.

Some of the slowdown in hiring has been blamed on the debttroubles in Europe, which have created a cloud of uncertaintythat is sapping business confidence.

A separate report from the National Federation ofIndependent Business showed its Small Business Optimism Indexeased 0.1 percentage point to 94.4 in May.

PETROLEUM PRICES DROP

Last month, imported petroleum prices dropped 4.2 percent,the largest fall in two years, after slipping 0.4 percent inApril. Weak petroleum prices should help to further lower thecost of gasoline, freeing up income for households.

Falling energy costs probably dampened wholesale prices inMay. Data on Wednesday is expected to show producer prices fellfor a third month in a row, according to a Reuters survey.

Excluding food and energy, wholesale inflation likelyremained tame last month. However, economists do not expect theweaker prices to filter through to consumers on a broad scale.

"The fall off in imported core consumer goods priceinflation has been fairly mild compared to other components,"said Peter Newland, a senior economist at Barclays in New York.

"Gains in core CPI are likely to continue to be driven bythe more heavily weighted and less import sensitive servicescomponents, such as shelter costs."

Imported industrial supplies and material prices recordedtheir biggest fall in nearly two years in May. Imported capitalgoods prices were unchanged, while the cost of imported motorvehicles fell for the first time since December.

The Labor Department report also showed export prices fell0.4 percent last month, the first drop since December and abigger decline than the 0.1 percent fall forecast by economists.Export prices increased 0.4 percent in April.

In the 12 months to May, export prices slipped 0.1 percent,the first year-on-year fall since October 2009.